Fed monetary policy makers meet again on the evening of Wednesday, July 26, 2023, at 22:00 GMT+4, to determine its next interest rate decision. Expectations indicate an additional increase in interest rates by a quarter of a percentage point to move within the range of 5.25-5.50%.
This would be the Fed’s eleventh increase in order to ensure that inflation cools down to target levels at 2%. According to markets, the Fed Chairman, Jerome Powell is expected to point out the following factors:
First, when excluding volatile food and energy prices, core consumer prices rose 4.8% year on year, meaning that core consumer price inflation is not declining fast enough to bring to Fed to a complete pause.
Second, that fears of rising oil prices are a concern, with prices currently rising at a monthly rate considered the largest since January 2022. This factor may constitute inflationary pressures for the upcoming period.
Finally, that the grain export crisis may see a return due to the continued conflict between Russia and Ukraine pushing food prices higher again.
The focus of markets and investors will be on Powell’s press conference, which takes place half an hour after the rate announcement. Investors should consider the following points.
- Fed policy for the course of interest rates for the coming period and when the cycle of raising interest rates may be coming to an end.
- How long will interest rates remain at high levels?
- Damages and negative effects caused by higher interest rates on the economy.
At a time when the Fed wants to control inflation without dragging the economy into a possible recession, the Fed Chairman will leave the door open to all expected possibilities, especially since inflation, despite its continued slowdown, is still considered high.
Therefore, it will be difficult to build expectations for price movement coinciding with the interest rate announcement as well as during the press conference. However, these are the scenarios that markets are mainly expecting.
- The occurrence of fluctuations in prices between high and low, and it will take some time before it begins to stabilize and take a specific path.
- Using terms indicating the continuation of the tightening policy may be positive for the dollar and negative for stocks, metals and other currencies, according to analysts. At the same time, any hints indicating an imminent end to monetary tightening cycle may be in favor of stocks and metals and at the same time negative for the dollar.
Therefore, traders should note that the markets have different ideas and convictions in the way they interpret the information issued, and therefore prices cannot move 100% according to that information, and traders should therefore take the following steps.
1) Monitor open positions for the possibility of price fluctuations throughout the day without excluding any surprises of price movement, which requires high attention.
2) Rely on the main support and resistance levels to follow the price movements by using the chart within a daily time frame and not relying on the intraday support and resistance levels.
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